Investor strategies for bear markets

Welcome to our Investor Education Originals series. In this video, let’s understand what’s the right investor behaviour during market downturns, or bear markets.

The stock market journey can be full of ups and downs. Sometimes you will have to sail through bear markets, and sometimes you will enjoy the perks of a bull market. Bull markets are exciting and fun, but the challenge comes when the bears rule the roost. You require correct strategies, confidence, and most importantly, composed temperament to sail through the bear market.

In this video, we will learn how to do just that.

How to deal with bear markets?

1. Avoid knee-jerk reaction

The most common mistake in a bear market is panic-selling. You fear the market will keep falling and sell off the stocks in a panic. You even end up selling off quality company stocks that are down due to sentimental impact and not because there’s a problem in the business.

2. The sale is on

Mr. Warren Buffett says, “be greedy when others are fearful. “A bear market is the time to build your portfolio by identifying quality companies. How do you do that? By doing fundamental analysis. Just focus on companies with high Return on Capital Employed, Return On Equity, and cash flow. And if their debt level is nil, that’s even better. Such companies will surely bounce back when bulls are back in the market. And when it comes to sectoral investment, invest in market leaders during the sectoral downturn.

3. Falling knives versus falling fruits

Seeing the consistent fall of stocks, some investors may feel enticed to buy those. But the trouble begins when they keep on falling. You have to be very careful whether you are catching the falling knives or falling fruits.

4. Start SIP

If you don’t want to deal with the stress of timing the market, The easiest way is to start SIP in index funds. You can consider index funds such as Nifty Index funds, Nifty Next50 Index funds or Nifty Midcap 150 Index funds.

5. Avoid leverage

Stock market investments are risky by its nature. Leveraged positions are even riskier. Invest in the stock market, but never with debts.